The newsletter is a roundup of financial news, investment status, and other financial trivia, giving you the insight you need to manage your money in any economic situation.

Asked by Bloomberg Adria whether anything could stop the key interest rate cuts announced for June, Mārtiņš Kazāks, Governor of the Bank of Latvia and member of the ECB’s Governing Council and Extended Council, cautiously replied that it would still be necessary to wait for the May inflation data but that, given the current situation, “it is quite likely that the first interest rate cuts will start in June”. This, he said, would remove a buffer for some downside scenarios.

Source: Bloomberg Adria

What will be the implications for Europe of the ECB’s future interest rate cuts? 4 Implications:

1. Currency exchange rates: an ECB interest rate cut could lead to a weakening of the euro against the dollar, as the euro would be less attractive to investors due to lower yields. This could increase the value of the dollar against the euro.
2. Capital market: The interest rate differential between the ECB and the Fed could encourage investors to move their capital to areas where interest rates are higher. This could affect capital markets and lead to changes in the prices of bonds, shares, and other financial instruments.
3. Economic growth: A cut in ECB interest rates could stimulate consumption and investment growth in the euro area, while stable Fed interest rates would keep the situation in the US unchanged. This divergence in monetary policies could lead to divergent economic growth between the euro area and the US.
4. Inflation: Lower ECB interest rates could boost inflation in the euro area, while stable Fed rates would keep inflation under control in the US. This divergence in inflationary pressures could affect global market conditions and international trade.

Overall prices in the US have risen by more than 19.5% in less than 4 years. That is an average of 5.5% per year, which has consequently eroded a fifth of the purchasing power of the US dollar. We have not had annual inflation below 3% for 37 consecutive months. Inflation is now building on previous years’ inflation. How can the US economy be described as a ‘strong’ economy?

Source: KobeissiLetter

How will we contain inflation in the coming years if commodities are not moderating due to a lack of new supply, stocks, and higher demand?

Commodity prices have soared to their highest level in 13 months. The Bloomberg Commodity Spot Index, which tracks 24 energy, metals, and agricultural commodities, is up 9% this year. Since February, the index has risen 11%, mainly due to global demand and supply disruptions. Copper prices are up 31% this year, oil 11%, gold 19%, and silver 34%. Commodity prices continue to put pressure on the Fed’s fight against inflation. Supply-side inflation remains a major problem.

Source: KobeissiLetter

The silver market is facing its fourth year of shortages, with this year’s shortage the second largest ever. This has led industrial users, who normally rely on miners for supply, to seek ounces by depleting the world’s main reserves. Inventories monitored by the London Bullion Market Association (LBMA) fell to their second-lowest level ever in April. Over the next two years, LBMA stocks could be depleted at the current pace of demand. We will slowly see a tightening of supply as industrial demand is expected to increase. How will an investor then get the silver he wants, and at what price?

Source: The Silver Institute, Bloomberg

Silver officially ended last week above $30, for the first time in more than a decade.

Source: Tavi Costa

The past rallies in 2006, 2011, and 2020 have caused silver to reach a point where the price has exceeded the 365-day moving average by 75%. It is currently at 20% of the average, so record highs at $50 per ounce are not ruled out.

Source: Garret Goggin

Gold has had a historic run, but what happens when interest rates start to fall?

Historically, gold has seen some of its best rises in the 24 months since the last Fed rate hike. Between 2018 and 2020, the yellow metal jumped by almost 50%, while between 2006 and 2008, it jumped by 55%. In this Fed rate hike cycle, it seems that the last rate hike was in July 2023. Since then, gold has jumped by an incredible 21% in 7 months. History tells us that there is an even bigger run-up in the price of gold.

Source: Incrementum

The newsletter “Financial insights and trivia” does not constitute an investment advisory service. Its content does not constitute recommendations to buy or offers to buy, but is intended to inform the public about developments in the financial field. Past returns are not a guarantee of future returns. Please consult a financial adviser for advice.